# Weekend Law: Prediction Markets, the 'God Squad' and Social Media Addiction

An episode of [Bloomberg Law](https://invisiblenetwork.ai/podcast/277975394), 11 Apr 2026, 38 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/7c892d84-801f-4c0b-b0e9-ae2b0012ff5f/9c599a6c-3095-4827-9943-b429000617e6/audio.mp3?utm_source=Podcast&in_playlist=91224201-26a6-429d-ac3c-ae2b0012ff6d

June Grasso talks to legal experts about the top stories of the week. See omnystudio.com/listener for privacy information.

## Transcript

[0:02] Speaker 1: This is Bloomberg Law with June Grosso from Bloomberg Radio.
[0:08] Speaker 2: If you want to make a prediction about US Supreme
[0:11] Speaker 2: Court review, the odds are clearly in favor of the
[0:14] Speaker 2: justices taking a case over who should regulate the booming
[0:18] Speaker 2: prediction markets, the States or the Commodity Futures Trading Commission. Calshi,
[0:25] Speaker 2: the leading prediction market, won the first appellate court decision
[0:29] Speaker 2: in the battle over regulation this week. It argued that
[0:33] Speaker 2: bets placed on the outcomes of sporting events on its
[0:36] Speaker 2: platform are not gambling, but events contracts, a type of derivative,
[0:42] Speaker 2: a theory Calshi's CEO to Rekmansour, has advanced.
[0:47] Speaker 3: I always say this, you know, whether something feels and
[0:49] Speaker 3: looks like gambling doesn't necessarily make it gambling. Speculation exists
[0:53] Speaker 3: in all financial markets. If we're going to take a
[0:55] Speaker 3: line that speculation is gambling, then the stock market what
[0:59] Speaker 3: retail participation is. Then buying options for retail is yo
[1:02] Speaker 3: data expired options is gamming. Then retail buying crypto is gamling.
[1:05] Speaker 2: And in a two to one decision, the Third Circuit
[1:08] Speaker 2: Court of Appeals agreed with Calshie and ruled that the
[1:11] Speaker 2: CFTC regulates the platform, not New Jersey, but lower courts
[1:17] Speaker 2: across the country have reached conflicting decisions on the issue,
[1:21] Speaker 2: and there are more arguments ahead in at least three
[1:24] Speaker 2: other appellate courts, making a circuit court split likely. The
[1:29] Speaker 2: favorite route to the Supreme Court joining me is Bloomberg
[1:32] Speaker 2: Intelligence senior litigation analyst Elliott Stein. Elliott tell us about
[1:37] Speaker 2: the legal battle that's been going on between the prediction
[1:40] Speaker 2: markets and the states.
[1:42] Speaker 4: Yeah, this litigation has been going on for over a
[1:45] Speaker 4: year now, and we have cases all over the country
[1:49] Speaker 4: in multiple state courts, multiple federal courts, And essentially it
[1:53] Speaker 4: started when some states started sending cease and desist letters
[1:57] Speaker 4: to the prediction markets like Calshie, seeking to stop them
[2:01] Speaker 4: from operating in those states because the states viewed those
[2:03] Speaker 4: products is gambling, and the prediction markets, particular CALCI, at
[2:08] Speaker 4: that point sued the states sort of preemptively to stop
[2:12] Speaker 4: the states from filing an enforcement action against them. And
[2:16] Speaker 4: the prediction market argument is that these are derivatives that
[2:20] Speaker 4: should be regulated by the CFTC, and under the Commodity
[2:23] Speaker 4: Exchange Act, states are preempted from regulating them as gambling
[2:28] Speaker 4: and the states, of course, take the position that these
[2:30] Speaker 4: products are really gambling in effect and they should be
[2:33] Speaker 4: regulated as such.
[2:35] Speaker 2: How are they not gambling? I mean you're placing a
[2:38] Speaker 2: wager on an outcome.
[2:40] Speaker 4: There are some differences and the event contracts that the
[2:42] Speaker 4: prediction markets offer, you really have two sides to the contract,
[2:46] Speaker 4: you know, parties on both sides, as opposed to your
[2:49] Speaker 4: traditional gambling and betting apps where consumer is really betting
[2:54] Speaker 4: against the house. And event contracts, like other derivatives, are
[2:58] Speaker 4: you know, contracts that you can get in and out
[3:01] Speaker 4: of and sell, which is also a difference, you know.
[3:04] Speaker 4: But really it comes down to the statutory language in
[3:07] Speaker 4: the Commodity Exchange Act and whether these event contracts fall
[3:10] Speaker 4: into the definition of swaps, which is very broad in
[3:13] Speaker 4: the Commodity Exchange Act. And related to that is whether
[3:18] Speaker 4: Congress intended to preempt states from regulating these products.
[3:23] Speaker 2: Lower courts across the country have reached conflicting decisions in
[3:27] Speaker 2: these cases. Which side is winning more of the lower
[3:30] Speaker 2: court battles, Like you.
[3:32] Speaker 4: Said, we have multiple decisions now at the trial court level.
[3:36] Speaker 4: It's funny. The first decisions came almost exactly a year ago,
[3:39] Speaker 4: in April of twenty twenty five with respect to these
[3:42] Speaker 4: sports event contracts, and Calcey won those. They want a
[3:45] Speaker 4: preliminary injunction in Nevada, they want a preliminary injunction in
[3:50] Speaker 4: New Jersey, and so you know, they sort of came
[3:54] Speaker 4: out of the gate winning. Then shortly thereafter, in August,
[3:57] Speaker 4: I believe, a federal court in Maryland ruled against Calci
[4:01] Speaker 4: and ruled in the states favor. And since then we've
[4:04] Speaker 4: had probably more trial court rulings going in favor of
[4:08] Speaker 4: the states, because you've had decisions in Ohio and in
[4:12] Speaker 4: Michigan in favor of the states. You had a state
[4:14] Speaker 4: court in Massachusetts issue of preliminary in junction in favor
[4:18] Speaker 4: of the state against Calshi as well. So I would say,
[4:21] Speaker 4: you know, up until the decision by the Third Circuit
[4:23] Speaker 4: Court of Appeals, you sort of had more federal courts
[4:26] Speaker 4: ruling in favor of the states, but you did have
[4:28] Speaker 4: some like I mentioned New Jersey and also Tennessee ruined
[4:31] Speaker 4: in favor of Calci than a Vada decision I mentioned
[4:33] Speaker 4: earlier was interesting because the judge there, even though a
[4:35] Speaker 4: year ago he ruled in favor of Calci. More recently
[4:38] Speaker 4: in October, he sort of changed his mind and ruled
[4:42] Speaker 4: in favor of Nevada, and that set sort of a
[4:45] Speaker 4: cascading series of events in Nevada litigation, which is all
[4:48] Speaker 4: going to be tied up in the Ninth Circuit next week.
[4:51] Speaker 2: And explain the Third Circuit's decision in favor of the CFTC.
[4:55] Speaker 4: This is a split decision, but the majority ruled that
[4:58] Speaker 4: the definition of swa under the Commodity Exchange Act is
[5:01] Speaker 4: very broad and is broad enough to encompass event contracts
[5:05] Speaker 4: like those that are offered by the likes of Calshie
[5:07] Speaker 4: and other designated contract markets dcms, and that under the
[5:12] Speaker 4: Commodity Exchange Act, the CFTC has exclusive jurisdiction over swaps
[5:17] Speaker 4: that are traded on designated contract markets and as a result,
[5:21] Speaker 4: states are preempted from regulating them as gambling. Those are
[5:25] Speaker 4: like sort of the two main issues, and those are
[5:27] Speaker 4: the same issues that we see being decided in the
[5:30] Speaker 4: trial court. But the decision by the Third Circuit is
[5:33] Speaker 4: the first time that we have very federal appeals court
[5:35] Speaker 4: rule on these issues in any sort of substance.
[5:39] Speaker 2: The dissenting judge, Jane Richards Roth wrote that Calshe's actions
[5:43] Speaker 2: are a performative slight meant to obscure the reality that
[5:47] Speaker 2: Calshie's products are sports gambling, and she said that their
[5:52] Speaker 2: offerings were virtually indistinguishable from the betting products available on
[5:57] Speaker 2: online sports books like Kings and FanDuel. Is she right?
[6:03] Speaker 4: Well, it depends how you ask, right, But you know,
[6:05] Speaker 4: I tend to think the prediction markets actually have the
[6:07] Speaker 4: better statutory argument here. I think the Commodity Exchange Act
[6:10] Speaker 4: is pretty clear that the CFCC has exclusive jurisdiction over
[6:16] Speaker 4: swaps that are traded on designated contact markets. You know,
[6:20] Speaker 4: that doesn't mean that states can't regulate your more traditional
[6:23] Speaker 4: forms of gambling because the Commodity Exchange Act doesn't stop
[6:27] Speaker 4: them from doing that.
[6:28] Speaker 2: The Third Circuit covers Delaware, New Jersey, and Pennsylvania. Other
[6:33] Speaker 2: jurisdictions don't have to follow this ruling. So how important
[6:38] Speaker 2: is it?
[6:38] Speaker 4: It's important because it's the first federal appeals court to
[6:41] Speaker 4: weigh in on these issues, But it's not going to
[6:44] Speaker 4: be the last, right, I mean, I mentioned earlier that
[6:46] Speaker 4: next week the Ninth Circuit is going to hold argument
[6:50] Speaker 4: in cases in Nevada concerning calcy robinhood and poly market.
[6:55] Speaker 4: The Maryland case that I mentioned earlier is going to
[6:59] Speaker 4: be argued in the Fourth Circuit next month in May.
[7:02] Speaker 4: The Massachusetts preliminary in junction that I mentioned earlier is
[7:05] Speaker 4: going to be argued in the Massachusetts Supreme Court also
[7:08] Speaker 4: next month. And then in the Sixth Circuit, we have
[7:12] Speaker 4: conflicting rulings from federal trial courts in Ohio and Tennessee
[7:16] Speaker 4: that is going to be argued sometime probably, you know,
[7:19] Speaker 4: in the second half of the year. So we're going
[7:20] Speaker 4: to have multiple decisions from multiple federal circuit courts, and
[7:25] Speaker 4: inevitably these cases are destined for the Supreme Court because
[7:29] Speaker 4: you're probably going to get conflicting rulings from some of
[7:31] Speaker 4: the circuit courts, and we're talking about issues of federal preemption,
[7:36] Speaker 4: which is a really important issue that the Supreme Court
[7:40] Speaker 4: likes to weigh in on.
[7:41] Speaker 2: So sketch out for us what the issues might look
[7:44] Speaker 2: like at the Supreme Court.
[7:46] Speaker 4: I think the issues have to do with what the
[7:48] Speaker 4: Commodity Exchange Act provides for and what Congress intended with
[7:52] Speaker 4: the Commodity Exchange Act going back multiple decades, and then
[7:56] Speaker 4: in nineteen seventy four, Congress basically gave the CFTC exps
[8:00] Speaker 4: of jurisdiction over derivatives that trade on federally regulated exchanges.
[8:06] Speaker 4: They removed language that would have given states concurrent jurisdiction
[8:10] Speaker 4: over those products. And then in twenty ten you get
[8:13] Speaker 4: the Dodd Frank Act, which adds swaps to that language
[8:18] Speaker 4: and very clearly includes event contracts in the definition of
[8:23] Speaker 4: swaps and also gives the CFTC authority and discretion to
[8:28] Speaker 4: and or reject event contracts that might be against the
[8:32] Speaker 4: public interests. So I think that's really what the focus
[8:35] Speaker 4: is going to be at the Supreme Court when these
[8:37] Speaker 4: cases reach are just like it's been in the lower court.
[8:39] Speaker 2: So has the CFTC been regulating any of these prediction markets?
[8:45] Speaker 2: Have they done anything?
[8:46] Speaker 3: So?
[8:47] Speaker 4: The CFTC under the Biden administration actually proposed a rule
[8:51] Speaker 4: that would have essentially banned contracts related to elections and sports.
[8:57] Speaker 4: When Kelsey first started offering election contracts leading up to
[9:02] Speaker 4: the twenty twenty four presidential election, the Biden administration's CFTC
[9:07] Speaker 4: tried to stop those. That was litigated cal she won
[9:10] Speaker 4: in the trial court and never really litigated fully in
[9:13] Speaker 4: the peals court because then you had the Trump administration
[9:15] Speaker 4: come in and so the case sort of went away.
[9:18] Speaker 4: And it was around that time that CALCI also started
[9:20] Speaker 4: getting into sports event contracts, and the CFTC at that
[9:25] Speaker 4: point was a little bit in flux as leadership was changing.
[9:28] Speaker 4: It didn't do much until really very recently in the
[9:31] Speaker 4: last couple of months, where it first revoked the Biden
[9:35] Speaker 4: administration's proposed rule and then started going down a path
[9:39] Speaker 4: where it would read to its own rule making. It
[9:42] Speaker 4: issued staff advisory talking about, you know, contracts that might
[9:46] Speaker 4: be susceptible to manipulation and how exchanges have to be
[9:49] Speaker 4: careful not to offer those and should really consult maybe
[9:52] Speaker 4: with the CFTC before listing those, and it also issued
[9:55] Speaker 4: an advanced Notice of proposed rule making, which is the
[9:57] Speaker 4: first step towards further rule making. The CFTC has started
[10:01] Speaker 4: to get involved in this. It has taken the side
[10:03] Speaker 4: of the prediction markets and the litigation in the Ninth Circuit.
[10:06] Speaker 4: It's filed in the amicus brief and support of the
[10:09] Speaker 4: prediction markets because the CTC takes the position that these
[10:12] Speaker 4: event contracts should be regulated by the CFTC, not by
[10:15] Speaker 4: the States. The CFTC just last week sued three states
[10:18] Speaker 4: to stop them from trying to regulate these products as gambling,
[10:22] Speaker 4: and so, you know, we should see more developments in
[10:25] Speaker 4: the area of rulemaking as well in the coming months.
[10:28] Speaker 4: I would say.
[10:28] Speaker 2: So, as you mentioned, the CFTC is suing Connecticut, Arizona,
[10:33] Speaker 2: and Illinois. Why do you think they're taking this affirmative
[10:36] Speaker 2: step instead of leaving the litigation to Calcy and the
[10:40] Speaker 2: other prediction market platforms.
[10:42] Speaker 4: Yeah, it's a little bit of pile on. I would say.
[10:44] Speaker 4: I'm not sure that their lawsuits add much beyond what
[10:50] Speaker 4: the prediction markets lawsuits already are trying to do. But
[10:54] Speaker 4: you know, it's just a further thumb on the scale,
[10:57] Speaker 4: I think. But I'm not sure it's going to change
[10:59] Speaker 4: the outcome of the cases all that much.
[11:01] Speaker 2: So we'll see what happens at the Ninth Circuit next week,
[11:05] Speaker 2: and we'll wait to see what action New Jersey takes,
[11:08] Speaker 2: whether it petitions the Third Circuit for a rehearing on
[11:12] Speaker 2: bank or petitions the Supreme Court. Actually a decade ago,
[11:17] Speaker 2: it was a Third Circuit case that the Supreme Court
[11:20] Speaker 2: took that led to the landmark decision allowing the states
[11:23] Speaker 2: to legalize betting on Sports. Thanks so much, Elliott. That's
[11:28] Speaker 2: Bloomberg Intelligence Senior litigation analyst Elliott Stein coming up next
[11:33] Speaker 2: on the Bloomberg Lawn Show. It's called the Gods Squad,
[11:37] Speaker 2: and its latest decision is putting critically endangered species at
[11:41] Speaker 2: risk in favor of oil and gas drilling. I'm June
[11:45] Speaker 2: Grosso and you're listening to Bloomberg.
[11:49] Speaker 5: The Committee, in doing this will be issuing an exemption
[11:53] Speaker 5: from the requirements of the ESA for all oil and expiration,
[11:56] Speaker 5: development and production activities associated with the Bone and Bessie
[12:02] Speaker 5: Outer Continental Shelf.
[12:03] Speaker 2: They're called the God Squad with good reason. They play
[12:07] Speaker 2: God in deciding whether a species lives or dies. The
[12:12] Speaker 2: Endangered Species Committee last met thirty four years ago until
[12:16] Speaker 2: last week, when Interior Secretary Doug Bergham convened it why
[12:22] Speaker 2: to consider waiving the protections for critically endangered whales, sea
[12:27] Speaker 2: turtles and other species in the Gulf of Mexico to
[12:30] Speaker 2: make way for more oil and gas drilling. Defense Secretary
[12:34] Speaker 2: Pete Hegseth claimed that pending environmental litigation is a threat
[12:39] Speaker 2: to oil and gas operations in the Gulf and a
[12:42] Speaker 2: matter of national security.
[12:44] Speaker 6: These legal battles waste critical government resources and make it
[12:48] Speaker 6: impossible for energy companies to plan and invest in new projects.
[12:52] Speaker 6: When development in the Gulf is chilled, we are prevented
[12:56] Speaker 6: from producing the energy we need as a country and
[13:00] Speaker 6: as a department.
[13:01] Speaker 2: After fifteen minutes, without testimony from experts or discussion, the
[13:05] Speaker 2: committee voted unanimously to exempt all oil and gas activities
[13:11] Speaker 2: in the Gulf of Mexico from complying with the Endangered
[13:14] Speaker 2: Species Act. Environmental groups are suing to cancel the exemption,
[13:19] Speaker 2: saying it will push some species like the rice is
[13:22] Speaker 2: wail into extinction. There are only fifty left on Earth,
[13:27] Speaker 2: and they're all in the Gulf, which is the home
[13:29] Speaker 2: to at least nineteen other threatened and endangered species, including
[13:34] Speaker 2: the world's smallest and most endangered sea turtle. My guest
[13:38] Speaker 2: is an expert in environmental law. Pat Parento a professor
[13:42] Speaker 2: at the Vermont Law and Graduate School. He's tangled with
[13:46] Speaker 2: the God Squad on several occasions. Pat tell us about
[13:50] Speaker 2: the God Squad.
[13:51] Speaker 1: So this is a cabinet level committee federal officers. It
[13:56] Speaker 1: was created in nineteen seventy eight in response to the
[14:00] Speaker 1: Supreme Court's decision in the infamous Teleco Damn case, where
[14:05] Speaker 1: the Supreme Court said, if there's a violation of the
[14:08] Speaker 1: Endangered Species Act that could result in the extinction of
[14:12] Speaker 1: a species, the courts are basically powerless to do anything
[14:17] Speaker 1: about that. Only Congress could exempt an action that might
[14:22] Speaker 1: jeopardize a species. And so Congress responded to that decision
[14:27] Speaker 1: by creating this cabinet level committee literally with the power
[14:31] Speaker 1: of life or death over a species, which has now
[14:35] Speaker 1: come to be known as the God Squad.
[14:37] Speaker 2: The God Squad has only met three times in its
[14:40] Speaker 2: history until last week. What was different about this meeting.
[14:44] Speaker 1: Well, this time around, for the first time, Bergham convened
[14:48] Speaker 1: the committee with just the federal officers, you know, and
[14:52] Speaker 1: the other God Squad proceedings, there were always states involved,
[14:56] Speaker 1: but this time it's just the Feds. And this time
[14:59] Speaker 1: the the committee was convened at the request of Secretary Hegseth,
[15:05] Speaker 1: who is claiming that there's a national security issue here
[15:11] Speaker 1: with regard to oil and gas development in the Gulf
[15:14] Speaker 1: of what we still call Mexico Gulf of Mexico. And
[15:18] Speaker 1: so this is the first time that that kind of
[15:23] Speaker 1: national security rationale has been invoked. And the law does
[15:30] Speaker 1: say if the Secretary determines there is a national security
[15:35] Speaker 1: threat as a result of some action that has been
[15:39] Speaker 1: stopped by the Endangered Species Act, then the Committee must
[15:44] Speaker 1: issue an exemption. So the real question is is there
[15:48] Speaker 1: really a national security emergency in this situation? And the
[15:51] Speaker 1: answer is no, there is not.
[15:54] Speaker 2: You're anticipating my next question. Is there any evidence at
[15:57] Speaker 2: all that the Endangered Species Act has resulted in any
[16:02] Speaker 2: restrictions on the amount of oil produced in the Gulf.
[16:06] Speaker 1: None. In fact, oil and gas development in the Gulf
[16:09] Speaker 1: is at an all time high. There is no action
[16:15] Speaker 1: that has been stopped by the Endangered Species Act. There
[16:18] Speaker 1: are lawsuits challenging the Trump administration's analysis of threats to
[16:25] Speaker 1: various species, most prominently the Rice's whale, which is one
[16:30] Speaker 1: of the most endangered whales and marine mammals in the world.
[16:34] Speaker 1: There are only fifty or so of these whales left
[16:38] Speaker 1: and they are all in the Gulf, and clearly oil
[16:41] Speaker 1: and gas development poses a serious threat to these whales.
[16:45] Speaker 1: But there are many other There's over a dozen listed
[16:48] Speaker 1: endangered species in the Gulf. There are sea turtles, there
[16:51] Speaker 1: are sperm whales, there are manatees, there are all kinds
[16:55] Speaker 1: of iconic marine mammals on the list of endangered species.
[17:00] Speaker 1: But the point is none of them have stopped any
[17:04] Speaker 1: of the oil and gas, either exploration or development. So
[17:09] Speaker 1: this is a made up, fictional crisis.
[17:12] Speaker 2: Hegseth said that pending litigation threatens to shut down all
[17:17] Speaker 2: oil and gas activities. But if it's pending, that means
[17:21] Speaker 2: they don't even know what the decision will be and
[17:24] Speaker 2: it could take years to get to it right.
[17:27] Speaker 1: And the point is that Congress never intended or even
[17:31] Speaker 1: considered the notion that lawsuits would be a trigger for exemptions.
[17:36] Speaker 1: You have to understand if the entire oil and gas program,
[17:40] Speaker 1: and that's what Hegseth is demanding an exemption for the
[17:44] Speaker 1: whole operation in the Gulf. If a lawsuit and there's
[17:47] Speaker 1: only one lawsuit right now, was enough to justify an exemption,
[17:51] Speaker 1: that means there is no Endangered Species Act protection for
[17:55] Speaker 1: any of these species. That's the dramatic impact of an exemption.
[18:00] Speaker 1: And that's why Congress said it is to be emphatically
[18:04] Speaker 1: a last resort mechanism where there is an irresolvable conflict
[18:09] Speaker 1: between a vital federal action and the Endangered Species Act.
[18:14] Speaker 1: We don't have anything like that. But the idea that
[18:17] Speaker 1: an exemption could be granted could wipe out all kinds
[18:21] Speaker 1: of protections for these species.
[18:23] Speaker 2: So there are two lawsuits by environmental groups to cancel
[18:27] Speaker 2: the exemption. What are the grounds they're alleging?
[18:30] Speaker 1: The Endangered Species Act sets up a really complex series
[18:34] Speaker 1: of steps for exemptions. I know this because I'm the
[18:37] Speaker 1: only lawyer that's been involved in all four of the
[18:40] Speaker 1: God Squad proceedings, all four of them. And I was
[18:43] Speaker 1: the spot at Owl's lawyer in the last God Squad proceeding,
[18:47] Speaker 1: and I was the Whooping Cranes lawyer in the first
[18:50] Speaker 1: God Squad proceeding. So I've been with this point. You
[18:52] Speaker 1: have good clients, Yeah, good clients, My favorite clients. They
[18:57] Speaker 1: never complain in any event. So you know, there's multi
[19:02] Speaker 1: steps involved in this process, including did you engage in
[19:05] Speaker 1: good faith consultation? Did you make a diligent effort to
[19:08] Speaker 1: identify alternatives to avoid jeopardy and avoid a conflict that
[19:12] Speaker 1: would require an exemption? Did you write an adequate environmental
[19:15] Speaker 1: impact statement? Did you ride an adequate biological assessment? You
[19:19] Speaker 1: see what I mean. So there's there's all kinds of
[19:21] Speaker 1: these safeguards and I know about these safeguards because I
[19:24] Speaker 1: had a hand in lobbying Congress to include them. None
[19:27] Speaker 1: of that's been done, none of those steps has been followed.
[19:30] Speaker 1: Heexcess showed up at this meeting, which lasted fifteen minutes,
[19:34] Speaker 1: among the cabinet officers, you know, nodding in agreement with
[19:37] Speaker 1: what Hegseth is saying. But nothing about whether there really
[19:41] Speaker 1: was an irresolvable conflict, nothing about the fact that there
[19:45] Speaker 1: had been steps taken to protect the risest whale. And
[19:48] Speaker 1: those steps are very modest. They're common sense steps. They
[19:52] Speaker 1: basically come down to keep a sharp lookout for whales
[19:56] Speaker 1: when the vessels are moving through the gulf, and if
[19:59] Speaker 1: there are whales in the vicinity, slow down, limit your speed,
[20:05] Speaker 1: don't run them over. I mean, these are the kinds
[20:08] Speaker 1: of very modest protections. In fact, I don't think they're
[20:11] Speaker 1: totally adequate protections. But the point is those are the
[20:15] Speaker 1: only protections that were imposed on oil and gas development. Now,
[20:19] Speaker 1: the oil industry doesn't want to slow down. They want
[20:22] Speaker 1: to speed up. They want to get as much oil
[20:23] Speaker 1: out as fast as they can, particularly now, right, So
[20:26] Speaker 1: that's kind of the context of what we're talking about
[20:30] Speaker 1: very modest steps to protect these critically endangered species, and
[20:35] Speaker 1: yet this administration is saying it's full speed ahead, damn
[20:39] Speaker 1: the whales, drill the oil.
[20:41] Speaker 2: There's a question of whether this kind of decision by
[20:45] Speaker 2: the God Squad is even subject to judicial review.
[20:49] Speaker 1: Yes, we'll find that out because this is the first
[20:53] Speaker 1: time that a national security rationale has been used, and
[20:57] Speaker 1: there's no precedent for how that gets reviewed. Hegcess determination
[21:01] Speaker 1: gets reviewed. But the legislative history, and again I had
[21:04] Speaker 1: a hand in this, of the nineteen seventy eight amendments,
[21:08] Speaker 1: makes it really clear that that decision is subject to
[21:11] Speaker 1: judicial review under the Administrative Procedure Act in the district courts.
[21:17] Speaker 1: And both the NRDC and the Center for Biological Diversity
[21:21] Speaker 1: have filed lawsuits in district court in DC challenging the
[21:26] Speaker 1: exemption and challenging hegcess finding. So we will find out
[21:31] Speaker 1: relatively soon, I think, whether the courts are going to
[21:34] Speaker 1: take review. We do know this that when a national
[21:38] Speaker 1: security reason is invoked, the courts are very careful about
[21:43] Speaker 1: how to review that. In fact, they're very deferential generally
[21:46] Speaker 1: on questions like that. But whether is zero evidence of
[21:50] Speaker 1: a national security threat. That's a very different situation. We
[21:54] Speaker 1: know that the Trump administration invoked national security when they
[21:58] Speaker 1: issued stop world orders on offshore wind farms, all five
[22:03] Speaker 1: of them off the East Coast this past year, and
[22:06] Speaker 1: the courts uniformly in all five cases rejected hegst invocation
[22:12] Speaker 1: of national security. Judge Lambert in the DC case actually
[22:17] Speaker 1: looked at the classified documents that HEGSTH was citing for
[22:22] Speaker 1: stopping work on these projects, and Judge Lambert said, I
[22:26] Speaker 1: don't see any national security thread in here at all.
[22:29] Speaker 1: So my expectation is we'll see something like that. To
[22:33] Speaker 1: the extent that Hegseth has some kind of classified information
[22:37] Speaker 1: he's relying on which he hasn't made public, the courts
[22:40] Speaker 1: are going to demand to take a look at that
[22:42] Speaker 1: and determine for themselves whether there really is a basis
[22:45] Speaker 1: for it. If there were some evidence that the Endangered
[22:49] Speaker 1: Species Act was somehow affecting military readiness military operations, that
[22:56] Speaker 1: would be a different situation altogether. But we don't have
[22:59] Speaker 1: any evidence of that.
[23:00] Speaker 2: Do they want to start new drilling in the Gulf?
[23:03] Speaker 2: Is there something actually on the agenda or is this
[23:06] Speaker 2: just an opportune moment to do this?
[23:09] Speaker 1: There definitely is drilling ongoing, and there is exploration for
[23:14] Speaker 1: drilling projects, and now they're moving way off the coast
[23:19] Speaker 1: into deep ocean waters of the Gulf and talking about
[23:22] Speaker 1: drilling wells deeper than we've ever drilled them before. And
[23:26] Speaker 1: that raises the prospect of a really catastrophic spill like
[23:31] Speaker 1: what we had in deep Water Horizon. That spill killed
[23:34] Speaker 1: twenty percent of the rice is whale that one spill.
[23:38] Speaker 1: So the idea that drilling can proceed without serious risk
[23:43] Speaker 1: to these species is just wrong. There's a lot of activity,
[23:47] Speaker 1: a lot of ship traffic. Ship traffic is the leading
[23:50] Speaker 1: cause of injury and death to these whales. We know
[23:54] Speaker 1: that also with the right whale off the east coast
[23:57] Speaker 1: in the Gulf of Maine, Vessel strikes is the leading
[24:00] Speaker 1: cause of mortality for those whales, and it's the same
[24:04] Speaker 1: for the rice's whale, the sperm whale, and the others
[24:06] Speaker 1: in the Gulf. So that's where we are. I mean,
[24:08] Speaker 1: it isn't as if the Endangered Species Act is stopping
[24:11] Speaker 1: oil and gas development, but it is supposed to require
[24:15] Speaker 1: at least those kinds of precautions that can reduce the
[24:19] Speaker 1: risk save some of these whales. Give them a chance
[24:22] Speaker 1: to recover.
[24:23] Speaker 2: We'll see what happens in the DC court. Thanks Pat.
[24:26] Speaker 2: That's professor Pat Parento of the Vermont Law and Graduate School.
[24:30] Speaker 2: Coming up fallout from the social media addiction litigation. I'm
[24:34] Speaker 2: June Grosso and this is Bloomberg. This week, Meta began
[24:39] Speaker 2: removing ads from Facebook and Instagram placed by trial lawyers
[24:44] Speaker 2: recruiting clients to join lawsuits against the social media sites.
[24:49] Speaker 2: Meta said, we will not allow trial lawyers to profit
[24:52] Speaker 2: from our platforms while simultaneously claiming they're harmful. There are
[24:58] Speaker 2: already thousands of lawsuits its targeting Meta, YouTube, TikTok, and
[25:02] Speaker 2: Snap by individuals, state attorneys general, and school districts claiming
[25:07] Speaker 2: the social media sites intentionally design their platforms to addict
[25:12] Speaker 2: young users, leading to mental health issues. And you can
[25:16] Speaker 2: expect many more similar lawsuits to be filed after last
[25:21] Speaker 2: month's landmark social media addiction verdicts, a six million dollar
[25:25] Speaker 2: verdict against Meta and Google in California and a three
[25:29] Speaker 2: hundred and seventy five million dollar verdict against Meta in
[25:32] Speaker 2: New Mexico. Is this the beginning of a public reckoning
[25:36] Speaker 2: that poses a threat, potentially an existential one? To social
[25:41] Speaker 2: media companies. Here to answer that question is one of
[25:44] Speaker 2: the foremost experts on internet law, Professor Eric Goleman of
[25:49] Speaker 2: Santa Clara University Law School. Eric, before we look at
[25:52] Speaker 2: the big picture, let's talk about the appeals, because a
[25:56] Speaker 2: successful appeal can turn things around for the social media
[25:59] Speaker 2: company Beneze. Do they have what you'd consider good grounds
[26:03] Speaker 2: for appeal?
[26:04] Speaker 7: I do think that there's some important issues that the
[26:06] Speaker 7: appellate court will have to weigh in on. The trial
[26:09] Speaker 7: court in the state court case as well a federal case,
[26:13] Speaker 7: have made a number of choices that were not obvious
[26:16] Speaker 7: that in some ways broke new ground, and as a result,
[26:20] Speaker 7: I don't really treat them as the final word on
[26:22] Speaker 7: the matter until we hear from other judges, appellate judges
[26:25] Speaker 7: if they actually even agree with those decisions. So I
[26:29] Speaker 7: think that there are several bass on which the defendants
[26:32] Speaker 7: have good grounds for appeal, But that doesn't mean that
[26:35] Speaker 7: the appeal is likely to succeed. I kind of write
[26:38] Speaker 7: it like a fifty to fifty I can't really predict.
[26:41] Speaker 7: The crystal ball is unclear. I think that there's good
[26:44] Speaker 7: grounds for appeal. I think that the plaintiffs have some
[26:46] Speaker 7: precedent to support them, even if I disagree with the
[26:48] Speaker 7: conclusions they reached. And so you know, this is exactly
[26:51] Speaker 7: how the judicial system is supposed to work. Complex tough
[26:55] Speaker 7: questions get posed to the first level of review, then
[26:58] Speaker 7: the second overview, and almost only a third level of review.
[27:01] Speaker 2: Do you think one of the grounds for appeal will
[27:03] Speaker 2: be based on Section two thirty that generally immunizes online
[27:08] Speaker 2: platforms for liability for user generated content.
[27:12] Speaker 7: I think that Section two thirty is one of the
[27:14] Speaker 7: solid grounds for appeal in this case. Essentially, the plaintifs
[27:18] Speaker 7: have had to argue that they're not suing over the
[27:22] Speaker 7: content that any individual victim was exposed to, but the
[27:25] Speaker 7: way in which that content was delivered, the various design
[27:28] Speaker 7: features that help get the content in front of the victim.
[27:33] Speaker 7: To me, that line between the content and the method
[27:37] Speaker 7: of presentation of the content is illusory. They're all the
[27:40] Speaker 7: same thing in my mind. They're all part of the
[27:43] Speaker 7: general publication or editorial decisions that the service made about
[27:47] Speaker 7: how to best and engage with its users. So, from
[27:50] Speaker 7: my perspective, that effort to navigate around what is third
[27:54] Speaker 7: party content and what is the service's first party design
[27:57] Speaker 7: choices really sophisticated, nuanced argument, but they're not clear to
[28:01] Speaker 7: me at all that the trial court got it right.
[28:03] Speaker 2: So do you think that this will lead social media
[28:05] Speaker 2: companies to change the way they operate.
[28:09] Speaker 7: I think that it would be remarkable if social media
[28:13] Speaker 7: doesn't change substantially over the next few years. If the
[28:16] Speaker 7: final outcome in a few years from now is that
[28:19] Speaker 7: social media has retained this status quote has today, I
[28:22] Speaker 7: think that would be remarkable. And it's not just because
[28:25] Speaker 7: of the litigation, though. If the plaintiffs win any part
[28:29] Speaker 7: of litigation, almost certainly the court will order changes to
[28:33] Speaker 7: the service, or any settlement agreement would require changes to
[28:36] Speaker 7: the services. But the reason why I'm so confident that
[28:40] Speaker 7: social media is under extraordinary pressure to change is because,
[28:43] Speaker 7: in addition to the litigation, state legislatures throughout the country
[28:47] Speaker 7: are passing laws that are requiring structural and tactical changes
[28:52] Speaker 7: to how the services operate. And unless the services can
[28:57] Speaker 7: also overturn all of those laws, those laws are actually
[29:01] Speaker 7: the governing rules that will dictate how social media services operate.
[29:05] Speaker 7: So as a practical matter, the litigation is only one
[29:08] Speaker 7: path where it's change. I think it would be foolhardy
[29:11] Speaker 7: on the part of any of your listeners to assume
[29:13] Speaker 7: that the social media services they have today, whether they
[29:16] Speaker 7: love them or hate them, it's going to be the
[29:18] Speaker 7: social media services they have in a few years from now,
[29:20] Speaker 7: and we should talk about what that means for all
[29:23] Speaker 7: of us, because we're not in the courtroom to express
[29:26] Speaker 7: what we want from social media, but our ability to
[29:29] Speaker 7: use the services is being dictated right now in courts
[29:33] Speaker 7: and in the legislatures around the country.
[29:35] Speaker 2: Will it be the social media companies putting in safe cards,
[29:39] Speaker 2: age verification, parental control, or will they have to change
[29:44] Speaker 2: what the jury found were addictive features.
[29:47] Speaker 7: All of the above and possibly more. In other words,
[29:51] Speaker 7: the litigation puts in play a number of very specific
[29:54] Speaker 7: tactical choices that the services have made, things like auto
[29:58] Speaker 7: play or in fits scrolling or algorithmic personalization. These are
[30:04] Speaker 7: tactical changes that might need to be changed in order
[30:07] Speaker 7: to avoid liability going forward. All of those features are
[30:11] Speaker 7: also being regulated by the legislators who are saying you
[30:14] Speaker 7: cannot have infinite scrolling, you cannot have auto play, and
[30:18] Speaker 7: so on. So either way, one way or another, those
[30:21] Speaker 7: services are going to have to evaluate the functions that
[30:24] Speaker 7: they have, but the plaintiff's basic argument doesn't rely on
[30:27] Speaker 7: any specific design feature. The basic argument is the way
[30:31] Speaker 7: in which you designed the service overall was intended to
[30:34] Speaker 7: addict your users and cause them harm. And to the
[30:38] Speaker 7: extent that that general statement becomes part of the law,
[30:43] Speaker 7: whether in legislation or litigation, we could get there either way.
[30:47] Speaker 7: Then the services have to review everything that they do
[30:50] Speaker 7: and consider how that might impact potential victims. As a result,
[30:54] Speaker 7: there's no limit or boundary to what structural changes could
[30:58] Speaker 7: be forced through the leg or the litigation. In either case,
[31:03] Speaker 7: everything is in play. And that's why again I'm so
[31:06] Speaker 7: concerned ad or confident that social media services will not
[31:09] Speaker 7: look the same in a few years from now.
[31:11] Speaker 2: If the addictive features are changed, does that mean that
[31:16] Speaker 2: the value to advertisers changes as well.
[31:20] Speaker 7: The short answer is, we don't know how the changes
[31:24] Speaker 7: to any particular product features will affect the revenue or
[31:27] Speaker 7: profits of the services, and I think it's actually impossible
[31:31] Speaker 7: to model. There is some set of secret sauce that
[31:34] Speaker 7: drives user engagement in social media, and it might be
[31:37] Speaker 7: that small changes to that secret sauce, or changes that
[31:40] Speaker 7: don't relate to the secret sauce have no impact on
[31:43] Speaker 7: the bottom line. It is also possible that even the
[31:46] Speaker 7: smallest change might have dramatic impact on the bottom line
[31:49] Speaker 7: and really change the value proposition for the services, how
[31:52] Speaker 7: they structure their offerings and how they are able to
[31:55] Speaker 7: profit from them. But we do know that in the end,
[31:58] Speaker 7: if the plaintiff's lawyers or the legislators have absolute power
[32:03] Speaker 7: to dictate over whether or not something is going to
[32:05] Speaker 7: cause victims harm, I don't know that there is a
[32:08] Speaker 7: profitable model at that point. In other words, at that
[32:10] Speaker 7: point the services can no longer design their offerings for
[32:14] Speaker 7: their customers. Somebody else external to the conversation is going
[32:18] Speaker 7: to come in and dictate how that will work, and
[32:20] Speaker 7: if so, the niche becomes much less lucrative, maybe not
[32:24] Speaker 7: even profitable.
[32:26] Speaker 2: Eric, you've said that it's the Internet that's on trial here,
[32:29] Speaker 2: not social media. Explain what you mean by that.
[32:33] Speaker 7: In addition to the lawsuits against social media services, the plaintiffs'
[32:37] Speaker 7: lawyers have taken the same basic legal paradigms that they're
[32:41] Speaker 7: advancing those cases and advance them against other parts of
[32:44] Speaker 7: the Internet. I'll mention three, although it's not limited to
[32:48] Speaker 7: these three generative AI, model makers, video game makers, and
[32:52] Speaker 7: social gaming in all three. In those cases, the plaintiffs
[32:56] Speaker 7: are essentially arguing that the services are designed to addict user,
[33:00] Speaker 7: that addiction causes harm, and therefore the services should be
[33:03] Speaker 7: liable for the resulting harm. The same exact set of
[33:06] Speaker 7: arguments in the social media addiction cases. So if the
[33:09] Speaker 7: arguments work in social media addiction, they will be advanced
[33:14] Speaker 7: and have a greater degree of likelihood of succeeding against
[33:17] Speaker 7: these other major segments of the Internet. And in fact,
[33:21] Speaker 7: if the arguments work, there's no segment of the Internet
[33:24] Speaker 7: that couldn't be potentially susceptible to the exact same arguments
[33:28] Speaker 7: that some function on the Internet is designed to addict
[33:30] Speaker 7: the users, it causes harm, they should be financially responsible.
[33:34] Speaker 7: So if the arguments work in social media addiction, they
[33:38] Speaker 7: will be potentially more successful everywhere else on the Internet,
[33:42] Speaker 7: and that could dramatically change not just social media, but
[33:45] Speaker 7: the entire innet. And that's why the stakes are so
[33:47] Speaker 7: high for these Bellweather trials.
[33:50] Speaker 2: Lexi Haszam, one of the lead attorneys representing plaintiffs and
[33:54] Speaker 2: school districts in similar cases, said, we have the wind
[33:57] Speaker 2: at our backs going into the next trials. These companies
[34:00] Speaker 2: are under a lot of pressure. I mean, does one
[34:03] Speaker 2: trial affect the next trial.
[34:05] Speaker 7: It doesn't, and that's in fact, the whole nature of
[34:07] Speaker 7: the Bellweather trials is to do basically a statistical sampling
[34:11] Speaker 7: of the entire corpus of claims and try to get
[34:15] Speaker 7: a sense about how to value that entire corpus based
[34:18] Speaker 7: on some independently chosen data points. So the plaintiffs are
[34:23] Speaker 7: I think excited because their arguments worked and that gives
[34:27] Speaker 7: them more confidence that the arguments are going to work
[34:28] Speaker 7: in the next case. But they're independent, and it entirely
[34:32] Speaker 7: possible that the next trial will reach a completely different result,
[34:36] Speaker 7: maybe massive liability far beyond six million, or maybe zero dollars,
[34:40] Speaker 7: or no liability at all. Now, having said that, each
[34:43] Speaker 7: side has now heard the other side's best evidence and
[34:46] Speaker 7: they're going to iterate. Both sides will change their messaging
[34:50] Speaker 7: to try to reach a different outcome or a better
[34:53] Speaker 7: outcome for them. So the plaintiff's lawyers may be feeling
[34:56] Speaker 7: confident that having seen the best evidence of the defendants,
[35:00] Speaker 7: they have a better sense about how they can reach
[35:03] Speaker 7: it to better outcome for them.
[35:04] Speaker 2: The social media cases are being compared to the tobacco
[35:09] Speaker 2: litigation with the global settlement and the opioid litigation. Do
[35:13] Speaker 2: you see a direct comparison.
[35:15] Speaker 7: Yes, and no, there's some kernel of truce to it.
[35:18] Speaker 7: So in general, I'll start with something like tobacco. Tobacco
[35:22] Speaker 7: has no known health benefits to its consumers. It's only
[35:26] Speaker 7: either neutral to their health or it's negative, whereas with
[35:29] Speaker 7: social media, we know that it has substantial benefits to
[35:33] Speaker 7: its users, in addition to some users driving potentially significant
[35:37] Speaker 7: detriments from it. And so trying to take the regulation
[35:41] Speaker 7: or the legal treatment of something that has no known
[35:44] Speaker 7: health benefits to something that has substantial benefits that need
[35:49] Speaker 7: to be accommodated and accounted for, I just think it's
[35:51] Speaker 7: like apples and oranges. I also think that it's not
[35:54] Speaker 7: an out of comparison because cigarettes are a physical space
[35:58] Speaker 7: problem that causes physical health, whereas social media is an
[36:02] Speaker 7: intangible venue for publishing content. And trying to draw analogies
[36:07] Speaker 7: between offline physical space items to online intangile items, including
[36:13] Speaker 7: the publication of content which gets special constitutional protection, I
[36:16] Speaker 7: just think it's an apt Now the reason why the
[36:19] Speaker 7: big tobacco analogy might be relevant is first, because both
[36:23] Speaker 7: sides are approaching this as if it is a litigation war.
[36:26] Speaker 7: And normally, when you think about people litigating against big
[36:29] Speaker 7: giants like Google or Meta, you just assume that the
[36:32] Speaker 7: plaintiffs are going to be outgunned financially or in terms
[36:36] Speaker 7: of their legal expertise. But that's not the case at all. Here.
[36:39] Speaker 7: You have an extraordinarily well funded group of plaintiffs who
[36:42] Speaker 7: have spared no expense at trying to get to successful outcomes.
[36:47] Speaker 7: Just like in Big Tobacco, the amount of money on
[36:49] Speaker 7: both sides was extraordinary, and that's true here as well.
[36:52] Speaker 7: This case is going to be litigated to the very
[36:55] Speaker 7: nth degree by both sides. There's no imbalance in the
[36:59] Speaker 7: power relationship. There. The other reason why it could be
[37:02] Speaker 7: like the big tobacco cases because it could change the industry.
[37:05] Speaker 7: It is possible that social media as an industry will
[37:08] Speaker 7: look different at the end of this litigation, just like
[37:11] Speaker 7: the tobacco industry looked different. So that sounds the stakes
[37:14] Speaker 7: are super high and I can see the analogy on
[37:17] Speaker 7: that front.
[37:18] Speaker 2: A lot to think about. Thanks Eric. That's Professor Eric
[37:20] Speaker 2: Golman of Santa Clara University Law School and that's it
[37:24] Speaker 2: for this edition of The Bloomberg Law Show. Remember you
[37:27] Speaker 2: can always get the latest legal news on our Bloomberg
[37:29] Speaker 2: Law Podcast. You can find them on Apple Podcasts, Spotify,
[37:33] Speaker 2: and at www dot bloomberg dot com slash podcast Slash Law,
[37:39] Speaker 2: And remember to tune into The Bloomberg Law Show every
[37:41] Speaker 2: weeknight at ten pm Wall Street Time. I'm Jim Grosso
[37:45] Speaker 2: and you're listening to Bloomberg

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